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Musk Bets Tesla on Model Y

If I were to use one word to describe Elon Musk, it’s “determined.” Last night, Tesla founder and CEO Elon Musk introduced the Model Y, a crossover SUV, smaller than the flagging Model X and bigger than the Model 3. He is determined that this will save Tesla.

Musk’s public stress bursting into Twitter and earnings calls where he has belittled financial reporters asking normal questions in favor of YouTube fluff belies some serious stress on the company under the surface.

  • Tesla quietly killed its autonomous car service idea, the Tesla Network, that was supposed to one day compete with Uber and Lyft.
  • Tesla is focusing on making cars (which it’s never quite gotten under control) yet has built its valuation (which many analysts believe is highly overvalued) on forward-looking services like autonomous driving.
  • Tesla has named a new CFO, Zachary Kirkhorn, to replace departed Deepak Ahuja. When a public company loses its CFO and names another from inside the organization (Kirkhorn comes from SolarCity), that sends signals to outside investors.
  • Tesla investors have sued Musk to stop his impertinent tweets about the company’s plans, which have repeatedly gotten him in trouble with the SEC.
  • There have been reports by local analysts that demand for the Tesla Model 3 have fallen through the floor, while others wait for vehicle deliveries, or refunds.

Tesla has collected hundreds of millions of dollars in deposits against vehicles and undelivered features, resorted to sales and accounting tricks to begin recognizing some of that revenue, then reversed course.

The company also announced it was going to an all-Internet sales model, closing all of its showrooms, and then reversed that decision.

It goes without saying that public companies are not supposed to operate this way. Public company visionary CEOs are not supposed to split their time between being a Rocket Man and a Car Man and a Boring Man. (Unless you are Jack Dorsey and even he has limits.)

So Musk is faced with a clear choice. Either he offers the auto market something hot and new, and collects some more advance sales cash in pent up demand, or he goes back to the well to dilute his investors further and raise cash. Or…he finds Tesla in Chapter 11 at some inevitable point in the future.

Musk went with the first choice and announced the Model Y. But far from visionary, the Model Y is lagging the EV crossover market, where German carmakers are already pouncing. Even GM is in the game with an electric offering from Cadillac.

I don’t think the shine is off the Tesla brand by any means, though they’ve been set the bar so high that any quality drop is a plague. The Model 3 was not as perfect as the Model S, and the Model X was overpriced and bulky. With Model 3 demand possibly exhausted in the U.S. (remember all that money Tesla collected in deposits), overseas demand flagging, and competitors now moving even or ahead of Tesla, where will the company’s future lie?

The Model Y is a good bet. But Tesla may not be able to ante up to make and deliver enough of them. One thing is certain, Musk will do–or say–anything to save his company.

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